The US dollar remains the dominant currency in the global economy (Social media)

For decades, the US dollar has been the cornerstone of the global financial system, its strength stemming from the robustness of the American economy, the stability of its institutions, and its leadership in technology and military. However, this hegemonic position is no longer secure. Escalating geopolitical tensions, coupled with deteriorating public debt, have weakened confidence in American institutions. With these structural pressures persisting and no reforms being implemented, the possibility of the dollar losing its status and eventually collapsing is no longer negligible but has already embarked on a path that is increasingly firm.

This article reviews the power elements that contributed to the dominance of the US dollar, analyzes the most significant threats to its supremacy, and raises an important question: What if everything changes?

History tells us that collapse does not happen suddenly, but begins gradually, and then erupts suddenly when there is no time to save it.

What made the United States a superpower? Or what are the foundations on which the dollar stands?

The strength of the dollar is not solely due to its monetary attributes, but rather because of the entire system that the United States represents.

The dollar directly reflects a series of power pillars - these pillars have placed the United States at the core of the global system since the end of World War II.

The most prominent of these pillars include:

1 - Economic Power

  • The United States is the largest economy in the world, with a GDP exceeding $30.5 trillion, accounting for more than a quarter of the global GDP.
  • Consumer spending is estimated at around $16.35 trillion (67% of GDP).
  • The United States has a stock market of $49 trillion (43% of the global total) and a bond market of $55 trillion, including $29 trillion in Treasury bonds. More than half of the Fortune 500 companies are based in the United States, with annual foreign trade exceeding $7 trillion.

2 - Military and Geopolitical Power

  • The military might of the United States is the pillar that maintains the current global order. In 2025, the US defense budget reached $962 billion (37% of the global military spending), ranking first in the world, and maintaining over 750 military bases in more than 80 countries.
  • The United States has more than 170,000 soldiers serving overseas, and this force guards 90% of trade routes, with 80% of important supplies needing to pass through its sphere of influence.
  • According to Brown University in the United States, the cost of wars after 2001 has exceeded $8 trillion.

3 - Political and Institutional Stability

The United States has a well-established constitutional system, based on the separation of powers, regular transfer of power, and respect for the rule of law. Despite partisan divisions, its institutions remain effective and stable, with judicial independence and media freedom. This institutional stability is one of the most important sources of global confidence and helps consolidate the dollar's position as a reliable international currency.

Countries retain the dollar not only because of its economic strength, but also because it is closely associated with the world's most stable and reliable legal and political systems.

4 - Innovation and Technology

  • The technological leadership of the United States is not accidental. It is the result of over $800 billion in annual R&D investment. Silicon Valley has nurtured major innovations such as artificial intelligence, the Internet, and the digital economy.
  • The United States has the largest technology companies in the world and leads in patent registrations, consolidating the dollar's position as a currency of innovation and an economic hub.

5 - Dominance in the Global Order

The United States has the greatest influence in international institutions:

  • It controls 16.5% of voting rights in the International Monetary Fund
  • It is the largest donor to the World Bank
  • It holds a permanent seat on the UN Security Council
  • It dominates the global financial transfer system and credit rating agencies.
  • It has direct and indirect influence over the Basel Forum and the World Trade Organization, with its policies becoming benchmarks for setting international rules and standards.

By 2025, the US federal debt will exceed $37 trillion (Social media)

6 - Demographics

The United States has one of the most diverse demographic structures, with immigrants accounting for about 14% of the country's population (over 47 million people), the highest proportion among developed countries. Approximately 45% of the Fortune 500 American companies were founded by immigrants or their descendants, and 52% of the population is under 40 years old, bringing flexibility to the US demographic structure, thus promoting its economic recovery and technological advantage.

7 - Soft Power and Cultural Power

The United States has extraordinary cultural influence. It has eight universities ranked in the top ten worldwide, attracting over 1.1 million international students annually. Hollywood produces over 700 films each year, with an industry size estimated at around $100 billion. This educational and cultural influence enhances the United States' global standing and indirectly supports its economic and political influence.

However, despite seeming solid, these pillars have gradually been eroded in financial, institutional, and geopolitical aspects, raising fundamental questions about the future and sustainability of American hegemony.

How did the dollar become the core of the global financial system?

The dollar did not rise to its current status by chance, nor was it solely due to the strength of the American economy. Instead, it was the product of an orderly historical process after World War II, gradually becoming the core of the global financial system over time through various alliances, institutions, and policies.

1 - The Bretton Woods System of 1944

In 1944, the Bretton Woods Conference, attended by 44 countries, decided to use the US dollar as the reference currency for the global financial system - linking the dollar to gold at a fixed rate of $35 per ounce, thereby linking it to all other currencies.

This made the dollar a global currency backed by gold. However, the United States ended this system in 1971. President Nixon decided to decouple the dollar from gold, meaning the dollar was no longer backed by any physical assets, and its value was entirely based on market confidence in the US economy.

2 - The Petrodollar of 1974

In 1974, the United States reached an agreement with Saudi Arabia to price oil in dollars. Today, over 80% of global oil exports are priced in dollars, making the dollar essential for any country importing energy. About 1 million barrels of oil are produced daily, most of which are sold in dollars. This created a continuous international demand unrelated to the scale of the US economy, making the dollar the central currency in the global energy market.

3 - Dominance in Global Trade

After the establishment of the petrodollar system, the dollar's dominance expanded further, covering over 85% of global trade pricing, including oil, gold, wheat, and copper. Approximately 90% of commodity futures contracts are priced in dollars, 60% of import invoices are recorded in dollars, even between countries not trading with the United States. 95% of foreign exchange transactions and 75% of imports in Africa and Latin America also use dollars.

4 - Reserve Currency and International Debt

The dollar accounts for 58.4% of global central bank reserves (2025). Over 65% of international bonds and debts are priced in dollars, even in countries without political relations with the United States. The dollar is also used in approximately 80% of trade financing and remains one party in 88% of foreign exchange transactions.

Under this framework, assets of funds such as mortgages, pensions, and private equity grew from $28 trillion to $63 trillion between 2009 and 2022.

Threats Facing the United States and the Dollar

Although the dollar remains the main reserve currency in the world, the United States faces a series of structural threats that have a profound impact on its economy. These threats vary in severity, but they already exist. If these threats continue to persist and no thorough reforms are implemented, their impact on the credibility of the dollar and its position in the global financial system will be a matter of time.

1 - Massive Debt Threatens Financial Stability

  • In 2025, the US federal debt exceeded $37 trillion, equivalent to 120% of its GDP, and is expected to increase to $50 trillion within 10 years.
  • The annual cost of repaying the US debt exceeds $1.1 trillion, higher than its defense spending, currently accounting for more than 15% of government revenue. This trend undermines financial stability and threatens the image of the dollar as a safe-haven asset.

2 - Persistent Deficits Put Pressure on the Economy and the Dollar

The US trade deficit is expected to exceed $900 billion, and the fiscal deficit is projected to reach $1.7 trillion in 2024. This long-term imbalance intensifies the need for external financing, placing cumulative pressure on the economy and threatening the global status of the dollar.

3 - High Inflation Weakens Spending and Confidence

Although the inflation rate will decline from 9% in 2022 to 3.2% in mid-2025, food and rent prices remain high, with living costs rising by 17% over the past three years, putting pressure on spending and weakening confidence in the effectiveness of monetary policy both domestically and internationally.

4 - Weakening Confidence in American Governance Institutions

Partisan disputes over the debt ceiling, election uncertainties, downgrades in sovereign ratings, and the erosion of confidence in institutions have damaged the image of the United States as a source of legal and financial stability, thereby undermining the foundation of confidence in the dollar.

5 - Decline in the Global Status of the Dollar

The share of the dollar in central bank reserves fell from 71% in 2000 to 58.4% in 2025, and its share in financial settlement systems also dropped to 42%. One-third of new reserves are allocated to alternative currencies, indicating a decline in the dollar's global status.

6 - The Dollar Becomes a Tool for Political Pressure

The dollar has become a tool for sanctions, prompting countries to reduce their reliance on the dollar and establish their own networks. This trend undermines the neutrality of the dollar and threatens its long-term stability.

7 - The Rise of Digital Currencies as Potential Alternatives

Alongside cryptocurrencies, central banks around the world are witnessing the expansion of digital currencies issued by their governments. These alternatives are weakening the dominance of the dollar, especially in cross-border trade.

The dollar has become a tool for sanctions, prompting countries to reduce their reliance on the dollar and establish their own networks (Social media)

8 - Capital Flight and Financial System Collapse

In the second quarter of 2025, US bonds experienced the longest capital outflow since the outbreak of the pandemic. At the same time, new currency groups emerged, and the exchange rate of the dollar against gold has fallen by 99% since 1972, weakening its image as a store of value.

9 - American Isolationism Undermines Globalization

Protectionist policies and trade restrictions are undermining the free order that has supported the dollar for decades, even among allies, and accelerating the financial disconnection of the dollar from the Washington system.

10 - Military Spending Consumes Economic Resources

The United States spends billions of dollars annually on indirect wars, consuming resources needed to support its economy. This consumption weakens the United States' ability to protect the system that serves its currency.

These threats persist - and at a faster pace than before - increasing the likelihood of further weakening of the dollar's position.

What Happens If the Dollar Loses Its Global Status?

As the United States faces increasing financial and geopolitical pressures, we can no longer avoid this fundamental question: What happens if the dollar's global status declines and it loses its role as the reference currency for international trade, debt, and reserves?

What Does the Decline of the Dollar Mean? Will It Lead to a Collapse?

The decline of the dollar is not merely reflected in a decrease in its market value, but in its gradual loss of its central role as a reserve currency or medium of exchange in the global financial system.

This trajectory is not sudden, but shaped by the accumulating structural threats we discussed earlier. In the absence of domestic reforms in the United States and continued implementation of existing policies, the depreciation of the dollar will accelerate, and the dollar will gradually lose its advantages. This is not a sudden collapse, but a natural end resulting from a prolonged and unresolved decline.

Almost 65% of global debt is denominated in dollars; any sharp depreciation of the dollar would complicate the repayment mechanism and create financing pressure globally.

  • Potential Impacts:

1 - Disruption of Global Trade

If the dollar suddenly loses its status as the global standard, international trade would fall into a regulatory vacuum, leading to pricing chaos, supply disruptions, and significant cost increases, potentially causing widespread damage to global supply chains.

2 - Undermining Global Financial Stability

Most major banks and institutions hold large amounts of dollar assets, so a sharp depreciation of the dollar could disrupt the stability of their balance sheets, affect liquidity and lending, and exacerbate widespread financial volatility.

3 - Triggering a Global Inflation Wave

Since the dollar is the primary pricing currency for food and energy, its collapse would drive up the prices of these goods globally, worsening inflation crises in import-dependent countries.

4 - Erosion of National Reserves

If the dollar crashes or depreciates sharply, the actual value of national reserves (approximately $6.6 trillion) would shrink, limiting their ability to import goods and fulfill external obligations.

5 - Pressure on Businesses and Markets

Multinational corporations hold large amounts of dollar-denominated liquidity and assets. Any sharp drop in the dollar's value would harm their balance sheets, increase financing costs, and reduce the attractiveness of the US market to investors.

6 - Damage to Personal Savings

Individuals holding dollar-denominated savings would lose part of their real value, leading to wealth shrinkage and a decline in confidence in monetary stability.

7 - Debt Market Crisis

Almost 65% of global debt is denominated in dollars; any sharp depreciation of the dollar would complicate the repayment mechanism and create financing pressure globally.

8 - Social and Economic Impact

Rising food and energy prices exacerbate the poverty crisis in developing countries and threaten the food and health security of hundreds of millions of people worldwide.

9 - Decline of American Hegemony

The loss of the dollar's position would weaken America's financial and military influence and accelerate the transition to a multipolar world order.

10 - Chaos in Financial Markets and Pricing

A sharp decline in the dollar could cause temporary chaos in asset pricing and capital flows, prompting people to accelerate the adoption of alternative currencies such as the euro, the yuan, gold, and digital currencies.

But the most important question is:

Is the United States prepared to bear the cost of losing its dominant position? Is the world prepared to deal with the resulting turbulence? What if this shift comes faster than we expect?

Source: Al Jazeera

Original: https://www.toutiao.com/article/7535286402968388148/

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